The Employee Ownership Update

Corey Rosen

July 28, 2005

Cox Would Implement Options Expensing

Christopher Cox (R-CA), President Bush's nominee to head the Securities and Exchange Commission was a cosponsor of the "Broad-Based Stock Option Plan Transparency Act," a bill that would limit options expensing to the top five officers of a company. But Cox told Senators at his confirmation hearing that he will implement the new accounting rules. There had been some hope among options expensing foes that Cox would slow down or even derail expensing, but on July 26, he told the Senate Banking Committee that "I will ensure that the Securities and Exchange Commission builds upon the record as already established and that the rule is implemented as the markets expect."

DOL Settles with Enron

The Department if Labor has settled its lawsuit with Enron Corporation over ERISA fiduciary breaches in its 401(k) plan and ESOP. The settlement gives the plans an unsecured claim of $305.36 million in Enron's bankruptcy proceedings. The final amount paid will depend on what assets the bankruptcy court makes available for distribution.

Ohio Data Show ESOPs Performing Well

In a new study of 69 companies drawn from a census of Ohio ESOP companies, the Ohio Employee Ownership Center has found that 25% of the companies indicated that before the ESOP was implemented, or 10 years ago if their ESOP was older than that, their profits were better then their industry, while just over half said they were the same, and the rest were worse. But after the ESOP, or over the last 10 years for older ESOPs, 45% of the companies reported improved profits relatively to their industry, 42% said they were the same, and 13% said they were worse. The median annual growth in stock value over the last three years was 11.5%, well above the market.

Wages were better too, with 24% of the companies reporting higher than competitive pay, and 70% reporting wages at the same level. More than half (54%) of the companies said they had a better benefit package, with a third saying it was about the same. An impressive 90% of the respondents had other retirement plans, far above the prevalence of retirement plans of any kind in similar companies. Employee ESOP account values, not surprisingly, varied enormously, from an average of $1,299 per participant to $600,000 per participant, with a median of $30,000. Median balances are strongly affected by the age of the plan as well as company performance and plan contribution rates. However, it is notable that the median account balances for 401(k) pans is in the range of $25,000 (there are no directly comparable numbers because 401(k) medians are only report by age cohort), and the 401(k) plan is usually the sole retirement plan in a company. Moreover, the 401(k) data include employees who have rolled prior account balances into their new plans.

Of the 69 companies, just under half are majority ESOP owned, reflecting the dramatic move towards majority employee ownership that has occurred in the last few years. About a third of the companies report that employees and management decide together on working conditions, and another half say that management consults with employees on these issues. The data show some change towards increased participation since becoming an ESOP, or in the last 10 years for older ESOPs, but the change is more incremental than dramatic.

More detailed results of the survey can be found in the Summer 2005 issue of Owners at Work, the newsletter of the Ohio Employee Ownership Center.